Board effectiveness evaluations: An international best practice
Board effectiveness evaluations: best practice
Board effectiveness evaluations are a requirement for public and private companies as per the provisions of the Companies Act 2008, Protocol on Corporate Governance for State-Owned Companies, 2016 and King IV report on Corporate Governance, 2016.
An independent and objective board effectiveness evaluation requires that the board of directors appoints the correct Partner to execute the evaluation process. The essence of an effective and result-driven evaluation lies in the methodology applied. Mazars in South Africa has developed a board effectiveness evaluation methodology that ensures time-efficiency, actionable insight, perception-driven mechanisms and adherence to strict confidentiality and anonymity.
Principle 9 of King IV recommends that the board of directors should ensure the evaluation of its own performance and support continued improvement in its performance and effectiveness; a formal process should be followed in accordance with the methodology approved by the board in order to ensure an opportunity for consideration, reflection and discussion of its overall performance. While the Principle B:6 of the UK Corporate Governance Code recommends that the board undertakes a formal and rigorous annual evaluation of its own performance considering the balance of skills, experience, independence, diversity, and knowledge in the board of directors amongst other factors relevant to its effectiveness.
Evaluating the performance of the board is common practice in many countries. Principle A of the Malaysian code on Corporate Governance and Clause 2.18 of the Instituto Brasilero de Governance Corporative Code of Best Practice of Corporate Governance purport to similar requirements. The G20/OECD Principles on Corporate Governance recommends the inclusion of regular board evaluations, thus aiding to the dynamics and functioning of the board in future strategy developments, innovation and value creation.
The Governance and Strategy unit at Forvis Mazars in South Africa endeavors to improve board practices through a tailor-made board effectiveness evaluation methodology. The basis of our board effectiveness evaluation is review of the existing Corporate Governance frameworks and structures, questionnaires, and interviews. Focus areas include board composition, responsibilities, committees, peer performance, strategy and oversight capacities within the board, and stakeholder engagement. Furthermore, we put an emphasis on material sustainability topics of the organization.
We seek to add value to the creation of organizations that are sustainable, profitable and socially responsible in South Africa through providing board effectiveness evaluations.
In the end, an independent board review will scrutinize the board’s perceived outcome in how they discharge their fiduciary duties. This positively impacts the board’s willingness to reflect and improve their performance.
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